What Is a SAFE?

A SAFE is a Simple Agreement for Future Equity: a contract in which an investor provides capital now in exchange for the right to receive equity later, under conditions defined in the agreement. It is not a loan. It has no maturity date and accrues no interest.

Conversion is usually triggered by a priced equity round. The two terms that determine how much equity the investor receives are the valuation cap, which sets a maximum valuation for conversion purposes, and the discount, which gives the investor a percentage reduction against the price paid by new investors. Where both exist, the investor generally receives the more favorable outcome.

The critical detail is that a SAFE does not fix your ownership percentage at the time you sign. Your position is determined by what happens at conversion, which may be years later and at terms you do not control.